Sizzle Fizzle: Cash Is King, Bitcoin Slumps And Google Notches A Big Earnings Win

Another exciting week as cash manages a surprise sizzle, Wave runs on Dunkin’ and small banks get a shot at regulatory relief. Looking less fizzy — and more fizzly — consumer spending, credit cards and bitcoin.

And, in the bounce-back sizzle of the week, we have Google and its good news earnings.

Sizzle:

Cash Keeps Cruising: Cash is not dead, and maybe it wasn’t even sleeping. Turns out that, as noted in the PYMNTS Global Cash Index findings, cash use as measured in its totality is on the rise. That shows up most readily in countries such as Lithuania, where cash foots the bill for nearly 87 percent of transactions, while it is still the largest share of payments choice in the United States, and the trend is toward population growth and economic growth, so the pie has gotten bigger (and thus cash use kept in lockstep).

Creative Car Commerce … There’s takeout, and then there’s dining in the car, and then there’s takeout while dining in the car while ordering ahead. The recent partnership struck between Waze and Dunkin’ Donuts promises, perhaps, a new way to commute and consume, with targeted directions that lead you to the hunger satiation of your choice — complete with promotion, via mobile. Here, the companies are putting the app in app-etite.

Small Bank Regulatory Relief? This week has seen what might be a decline in regulatory hurdles for banks of the smaller variety. The advent of first quarter reporting this year also means that firms with a maximum of $1 billion in assets on the books are able to opt into a regulatory landscape that has been known to be less demanding on compliance, reducing by 40 percent the thousands of data points that are part of, say, governance under Dodd-Frank. There are roughly 6,000 banking institutions in the United States and about 4,800 are of the smaller variety.

Fizzle:

Bitcoin Loses Some Support: Blockchain may be getting all the accolades, while bitcoin is getting, in drips and drabs, left by the wayside. The virtual currency has its fans, but some big banks are not among them, as three bitcoin exchanges have said in recent weeks that they have been unable to process dollar-based transactions and firms such as JPMorgan have said they will not do the processing. In some cases, such as in Taiwan, banks are blocking requests to deposit or withdraw the digital currencies.

Credit Card Losses Rising: We all know that consumers have an appetite for debt. But might some late-breaking stats show some canaries a-chirpin’ in the coal mine for debt that has scaled new heights? The first quarter of the year showed low losses are creeping higher, as noted by American Banker, with debt up double digits to more than $12 trillion; but net chargeoffs are also on the rise among the half dozen biggest issuers. Consider Capital One, which had more than a 5 percent net chargeoff rate in its U.S. portfolio, compared to just over 4 percent last year. Too much of a good thing can be too much, perhaps, but time will tell.

Consumer Spending: Big brands go starving for margins when consumer appetites cool. Take a gander at spending on packaged goods and the behemoths within the sector — perhaps you’ve heard of Pepsi and Procter & Gamble — where spending was flat. That’s a bit better than the 2.5 percent decline seen overall in consumer packaged goods spending (annually). But it is nothing to write home about in an environment where GDP growth is still positive.

Sizzle of the Week : Google

Well, looks like concerns about that fizzle-y-looking weakness in Google’s advertising platform last quarter were a bit misplaced. Google posted a big beat on Wall Street’s estimates almost across the board — and analysts and investors weren’t so much just pleased as they were effusive.

“For a company of Google’s size to post the growth that it has is just a testament to the quality and usefulness of the products they make,” said Colin Gillis, an analyst with BGC Partners.

After a slight miss on analyst expectations during Q4 — and a big drop in share price to go with it — Google has bounced back in Q1, reporting surges in profit and revenue pushed by growth in ad revenue, paid clicks and relatively new interest areas like cloud and hardware services.

And, better than the green arrows, the direct result of them: Alphabet undoubtedly got the analyst takeaway they wanted — summed up here by Gillis.

“They [Google] are the dominant force in digital advertising.”

By the Numbers

The big number was the revenue figure: Alphabet reported revenue of $24.7 billion — its second largest quarter ever — a 22 percent increase over last year’s first quarter numbers. Analysts had been forecasting $24.22 billion. Profit also beat Wall Street estimates and rose 29 percent year over year to $5.43 billion. That net income represents profit of $7.73 per share; analysts had forecast first quarter profit of $7.34 per share.

Google’s ad revenue — the largest cash cow in the business — was up 18.8 percent to $21.41 billion in the first quarter. Paid clicks increased by 44 percent, widely beating the 29.7 percent predicted.

One notable area — mostly because it was unique — where Google underperformed analyst expectations was in traffic acquisition costs. Analysts had been expecting $4.41 billion as the number. Actual acquisition costs on the Google network were $4.63 billion.

“Mobile is more expensive to support,” Google’s CFO Ruth Porat noted in a call with investors.

Alphabet is also seeing growth in its “other” category that includes things like hardware and cloud (the home of devices like the Pixel smartphone, Play Store and cloud business), which saw revenue increase by a huge 49.4 percent to $3.10 billion during Q1.

Granted, when stacked up against the revenue search, display and video advertising, that figure is somewhat less impressive. But it at least demonstrates ability to growth beyond advertising as a revenue stream.

For those looking for a tidbit on how the Pixel phone is doing … sadly no dice. Other than a mention that it is “doing well” by CEO Sundar Pichai, no specific numbers were attached to it other than the growth in its general category.

What’s Next

As might be expected, Google is pleased with this run of results.

“Our excellent results represent a terrific start to 2017,” Porat noted. “We clearly continue to benefit from our ongoing investments in product innovation and have great momentum in our new businesses across Alphabet.”

While analysts are impressed with this quarter’s growth, there are lingering concerns that the market is maturing, and that Alphabet needs to continue casting a wider net, particularly since Facebook is always aggressively sitting in Google’s rearview, looking to eat up mobile advertising market.

YouTube and the future of video display ads were the favored talk-up in today’s earnings call.

“YouTube revenues continue to grow at a significant rate, driven primarily by video advertising,” Porat noted.

And Google’s results seemed to put to bed most investor concerns about a YouTube controversy over the placement of ads next to inappropriate content. The backlash pushed some prominent companies to suspend their digital ads on the video service.

The tempest, given Alphabet’s overall strong performance, however, seems to have been mostly limited to a pretty small tea kettle.

And today, the story is of growth — especially in Alphabet’s share price. According to reports, shares in Alphabet popped by 4 percent when the results hit the wires.